April 9, 2012

Nonprofits lagging on finance

The economic turbulence of the past three-and-a-half years has whipsawed nonprofits.

Some have shut down, while others having frozen or cut staff, pay, benefits and programs.

Smart nonprofits have taken a hard look at their programs and operations, searching for ways to get back to their mission and to the basics of doing business, including keeping better track of their finances and economic indicators.

But as a new study shows, nonprofits have a lot to learn about finance.

While three in four of over 500 nonprofit financial-management professionals surveyed by The Center on Philanthropy at Indiana University believe they are knowledgeable about financial principles and concepts, only 6.9 percent see themselves as financial experts.

And most nonprofits are falling down on some critical financial functions.

Six in 10 nonprofits surveyed, for example, do not have an audit committee, and only one in four said their board was “very involved” in planning for possible financial scenarios, even though the nonprofit managers recognized the importance of being able to make forecasts based on external factors.

Nonprofits, the report says, need to “assess their financial monitoring mechanisms in light of the environment of analysis and accountability.”

In the face of a complex and uncertain economy, an intensely competitive charitable marketplace, and a funding community that increasingly wants to see impact and metrics, nonprofits that expect to survive and thrive need to become more financially literate, and they need to do it quickly.